Ecommerce Investments Pay Off for FedEx in Fiscal 2016

Amidst reporting on its fourth quarter and fiscal 2016, FedEx executives discussed the growth and importance of its ecommerce business, reflected by the company’s recent spate of acquisitions and investments in its ground division as well as its financial results.

“Ecommerce has become a way of life for consumers requiring goods around the world, but the success of ecommerce continues to be dependent on transportation companies’ ability to reliably and quickly make residential deliveries around the world,” said Mike Glenn, president and CEO of FedEx Services, on a call with analysts.

Glenn then talked about how the company’s acquisitions of Bongo – now rebranded FedEx CrossBorderTNT Express in Europe and major 3PL Genco are all contributing to FedEx’s ability to address ecommerce market demands here and abroad.

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To that end, FedEx spent $4.8 billion in fiscal 2016, which will increase to $5.1 billion in 2017, $2 billion of which will go towards expansion of ground shipment facilities to bolster ecommerce capabilities. For the year, FedEx Ground revenue increased 20% to $4.29 billion.

If the company broke out ecommerce as a separate unit, “it would become clear FedEx is one of the most profitable ecommerce companies in business today,” Glenn said.

FedEx reported adjusted earnings per share of $3.30 on $13 billion in revenue for the  fourth quarter, beating analyst expectations of $3.28 and $12.8 billion, respectively. However one-time charges, primarily the recent TNT acquisition, led to a GAAP net loss of $0.26 per share.

Asked about the impact of Walmart’s recent addition of its own subscription service similar to Amazon Prime, and its intention to use regional carriers to fulfill some of those orders, Glenn said it isn’t a concern. FedEx currently services the majority of Walmart’s ecommerce volume.

“The fact of the matter is regional carriers simply don’t have the scope and the scale to be able to compete with the networks that make up 95% of the ecommerce shipments in the U.S,” he said, referring to FedEx, UPS and the U.S. Postal Service. “So though there’s a role for regional carriers, but they cannot compete in our opinion with FedEx over the long haul.”

Concerning the TNT acquisition, which closed May 25, FedEx chairman and CEO Fred Smith said while the integration costs are estimated at $200 million, it will be more than offset by revenue and profitability gains. This will be enabled, he said, by improvements in key efficiency metrics like delivery density, cost per stop, and stops per hour given TNT’s massive network.

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